The Best Binary Options Broker 2020!
Perfect For Beginners!
Free Demo Account!
Free Trading Education!
11 Best Ways to Get Free Cryptocurrency Without Mining
Money Done Right does not run display ads or accept sponsorships to promote particular products or services. However, we may receive a commission if you purchase or sign up through links on this page. Here’s more information about how we make money.
With the chance to earn a significant amount of money through cryptocurrency, you might be looking into simple ways to amass cryptocurrency for yourself.
While cryptocurrencies are often volatile, they can provide much greater rewards than traditional investment ventures.
For example, in December of 2020, Bitcoin reached a record high of just under $20,000 per coin.
When Bitcoin first released in 2020, it cost roughly $0.0008 to purchase a single Bitcoin.
It’s much more difficult to get high-value cryptocurrencies these days, but it’s certainly not impossible.
In fact, there are quite a few ways to get cryptocurrencies completely free.
Rather than purchasing cryptocurrencies, these methods allow you to earn crypto for free, whether you currently have cryptocurrency or not.
Here is Money Done Right’s guide to the 11 best ways to get free cryptocurrency without mining.
Table of Contents
How Does Cryptocurrency Work?
While cryptocurrency may sound complex, and in many facets it is, the idea of cryptocurrency is actually rather simple.
Rather than a centralized form of physical currency, cryptocurrency is a digital peer-to-peer currency that is tracked through a public digital ledger.
The Best Binary Options Broker 2020!
Perfect For Beginners!
Free Demo Account!
Free Trading Education!
This public ledger is called a blockchain, and one of the most common ways to earn cryptocurrency is to mine the blockchain, which we will detail later in the article.
This mass running ledger is encrypted to secure user data and to secure the entire system.
Cryptocurrency can be used just like any other form of currency, it is simply housed digitally rather than being physically printed and minted.
You also have the opportunity to invest in cryptocurrency through cryptocurrency exchanges, which is similar to the stock exchange.
Rather than storing, receiving, and transferring money through a traditional bank, digital wallets are used to make these digital transactions.
These wallets secure cryptocurrencies, make online transactions streamlined, and even give you access to the public ledger.
The Basics of Mining
Every cryptocurrency transaction made is added to the ledger queue.
Before it makes it onto the public ledger, each transaction needs to be validated.
Miners use software to validate the transactions in sets, which are called blocks.
When a block of transactions is completed, miners work to validate the data as quickly as possible.
The first miner to verify the data receives a cryptocurrency reward.
The verified block is then added to the public ledger, creating a chain of blocks that make up the ledger, which is where the term “blockchain” comes from.
As we mentioned, the entire system is encrypted, and the transactions are validated when the encryption is solved by mining software.
Using a keyword, a string of numbers that only a specific keyword can produce (called a HASH), and a randomly generated number, advanced mining software works to validate all transactional data before any other user.
Before the rise of the cryptocurrency market, it was possible to mine from your home computer and earn a lot of cryptocurrencies.
As prices skyrocketed, more and more miners began competing for crypto, and more and more transactions began occurring all over the world.
Now, it would take years for a home computer to validate just one block of transactions. This has caused many miners to rely on expensive mining software through cloud-based applications.
Money Done Right’s Top Ways to Get Free Cryptocurrency
If this all sounds too complex, we’re here to show you a few simple ways to get free cryptocurrency.
You don’t need to invest in expensive mining software and you don’t need to be a cryptocurrency expert to make money through cryptocurrency.
Here are our top 11 ways to get free cryptocurrency without investing in mining.
1. Sign Up for an Initial Coin Offering
While there is often an initial up-front cost for buying into an Initial Coin Offering (ICO), many ICOs offer lucrative coin bonuses.
ICOs are a new way of raising capital to fund a new business venture, and the value of the new coin ties to the overall value of the company.
Many ICOs will allow you to buy in with your existing cryptocurrencies.
You simply exchange some of your existing coins for the new coin at a set exchange rate.
An ICO works much like an Initial Public Offering (IPO), but rather than owning stock, you’ll own new digital currency.
One of the draws of purchasing into an ICO is the opportunity for bonus coins.
For example, you exchange 10 tokens, or coins, of X currency in exchange for 5 coins of the new currency.
In an ICO, you might receive an additional 5 coins on top of the 5 you already received as part of the initial offering to draw investors, which makes it a great way to earn free cryptocurrency.
We always advise that you thoroughly research any ICOs before buying in.
The cryptocurrency market has been rife with ICO scams, and if a bonus offer sounds too good to be true, it often is.
There is always financial risk when entering an ICO. However, if the currency is stable and produces consistent growth, purchasing at the initial price offering can result in serious financial gains.
2. Wallet Promotions
As we mentioned earlier, the role of a wallet software is to house and transfer coins from peer-to-peer.
All you need to do to use a wallet is simply download the wallet software, such as Coinbase or Uphold.
There are countless wallets available for use. Many of them have free coin offers from time to time for downloading the software, signing up for a new account, or creating a new wallet in your existing account.
These offers typically happen in alignment with an ICO, so be on the lookout for free coin offers as they typically last for a short period of time.
With so many wallet options out there, always be careful when downloading new software to your computer or mobile device.
Some wallets offer lucrative promotions to get you to download the software, which in turn downloads malware to your device.
We recommend using trusted, secure wallets such as Copay Cryptocurrency Wallet, Bitcoin Core, Coinbase, and Edge Wallet.
These wallets are some of the most popular on the market for their ease of use and high-end security, making them a safe and reliable wallet choice.
In addition to free crypto offers for signing up, creating a new wallet, or taking advantage of a special promotion, some wallets also offer airdrops.
Airdrops are a method of earning free crypto that doesn’t require you to do anything other than have a specific wallet.
Airdrops are a way for the teams behind the wallets to gain more users. These highly effective strategies give new and existing users free crypto through various engagement touch points such as social media, email, or through the digital wallet itself.
The goal of an airdrop is to raise brand awareness and gain new users, and if you’re an existing wallet holder, you’ll be able to grab free crypto through airdrop marketing strategies.
If you hold a wallet that has an airdrop, you will typically need to request the airdrop through the various means of communication that the wallet offers, whether that’s email, instant messaging, or social media.
This approach makes airdrops an incredibly simple way to earn free crypto without mining.
4. Take Surveys
Taking surveys is a popular method to earn cash and gift cards online, but now you can also take surveys to earn free cryptocurrency.
There are multiple sites and apps you can download that will pay you in cryptocurrency for taking surveys.
Again, there are plenty of sites and apps that are simply scams, but there are also plenty of legitimate sites and apps that will pay you real cryptocurrency for completing surveys.
Kinit is one of the most popular cryptocurrency survey sites in the world, and operates just like survey sites that pay you in cash and gift cards.
Complete surveys and daily activities to earn Kin, a new cryptocurrency you can use on the app to redeem gift cards and other fun prizes.
Kinit plans to partner with brands around the world and reward those companies with Kin for creating engaging and exciting experiences, rather than generating revenue from ads and selling user information.
Earn.com has another popular app that rewards users with cryptocurrency by taking surveys, completing activities, and engaging with the app.
It also is a Bitcoin affiliate program, meaning you can sign up as an affiliate and earn Bitcoin every time someone uses your referral link to sign up.
Rather than spending your time taking surveys and earning a few cents to a few dollars per activity, you can earn cryptocurrency that can grow in value over time. This is a great and very easy way to earn digital currency for free.
Faucets are another marketing strategy to get users to go to a specific site and engage with the site or advertisements on the site.
While the earnings are relatively small, a faucet may be a simple way to get free cryptocurrency without having any upfront investments.
When you locate a faucet, which is typically a webpage that is full of advertisements and other engagement links, you can complete actions such as clicking on the links or filling out informational surveys.
Completing these tasks may grant you a small amount of cryptocurrency, but it’s never a guarantee.
6. Cryptocurrency Referral Programs
Cryptocurrency programs are available to those who are part of crypto exchange sites, and if you currently hold crypto, you’re more than likely already a part of one of those exchange sites.
These exchanges often have a referral program, much like an affiliate program.
When you get others to sign up using your referral link, you can earn free crypto or other rewards.
Users have to complete specific actions, typically a minimum number of transactions or buying and selling a minimum amount on the exchange, in order for you to earn your referral reward.
Using an exchange’s referral program is one of the easiest ways for you to earn cryptocurrency for free, with very little involvement needed on your end.
Remember, always go through secure, safe exchanges to avoid common scams.
7. Invest Your Crypto
Cryptocurrency is one of the most volatile investments available today, but it can also be one of the biggest payoffs if you invest correctly.
Rather than viewing cryptocurrency as merely a currency, you should think about crypto as an investment.
Just like the stock market, cryptocurrencies fluctuate day to day based on how many people use it and its market value.
Exchange your coins strategically and you’ll see real gains in the form of free crypto.
The exchange rate plus the interest earned from the increase in market value isn’t the easiest way to earn cryptocurrency for free, but it can be the most lucrative.
8. Shopping Online
There are many companies around the world that partner with cryptocurrencies to run exciting and fun promotions for doing the shopping you already do online.
When you shop at a specific partnering retailer, you may get a certain percentage of your sale back in the form of cryptocurrency.
There are also wallets that have browser extensions designed to recognize online stores that have cryptocurrency offers, making it easier than ever to get free digital currency.
9. Long Game Savings
Get your finances on track and earn crypto for free by meeting your saving goals through Long Game Savings.
Long Game Savings was created to help consumers make smart saving decisions through incentives, including cryptocurrency.
The site lets you unlock fun online games that give you cryptocurrency for free.
These games are unlocked by setting personalized savings goals and meeting those goals.
Long Game Savings monitors your saving when you link your bank account and gives you the tools you need to meet your financial goals. The platform also provides you with free digital currency for playing games.
The site partners with Ethereum, Brave Browser, and 0x Project to provide free virtual currency by staying active on Long Game Savings, meeting savings goals, playing games, and completing other activities.
In addition to providing free cryptocurrency, Long Game Savings also offers free resources to teach you about cryptocurrency and how to navigate the market successfully.
After you earn, simply link your wallet and withdraw your crypto to use it how you want.
Bituro is one of the most popular ways to earn digital currency and is a leading market research provider.
Like survey sites for cash and gift cards, Bituro allows users to take surveys on the products and services they use every day.
Rather than getting only points, cash, or gift cards, users receive cryptocurrency rewards, and have the option to earn cash and gift cards as well.
Some of the activities you can do to earn cryptocurrency include completing surveys, installing applications on your phone, and watch videos.
There are new offers almost daily, giving users plenty of opportunities to earn points and redeem them for various cryptocurrencies.
Maximize your earnings through the Bituro referral program, earning you 10% of the points that all of your referrals earn.
Link your wallet to easily withdraw your crypto, and be sure to download the Bituro app to earn even more on the go.
11. Coin Bucks
Our final way to earn free cryptocurrency without mining is through Coin Bucks.
This site allows you to earn free Bitcoin by completing various online activities, much like Bituro and other similar sites that we’ve covered.
Coin Bucks has a robust selection of fun and exciting offers that you can redeem through the app or directly on the site.
Browse the thousands of offers and select the ones that you want to redeem.
Complete the offer requirements and watch your account grow with instant credit after completing the offer.
Coin Bucks also offers daily payouts, meaning you’ll get your Bitcoins in your wallet the day after you earn them, automatically.
Offers include providing information via surveys and forms, installing apps, and promoting and sharing Coin Bucks via social media.
The site also offers a lucrative referral program and the opportunity to earn bonuses by ranking up the Coin Bucks tiers by completing these tasks.
Bringing It All Together
At Money Done Right, we want you to succeed in all of your financial endeavors, and we’ve seen cryptocurrency make a positive impact in financial markets.
You don’t need to invest in pricey mining software in order to break into the cryptocurrency market. And with so many free ways to earn cryptocurrency, now is a great time to jump in.
Do you have any experience trading and exchanging cryptocurrency, or do you have any other ways to earn free cryptocurrency without mining? Let us know in the comments below!
Logan is a practicing CPA, Certified Student Loan Professional, and founder of Money Done Right, which he launched in July 2020. After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Learn more about Logan.
How to Make Money with Cryptocurrency (With No Experience)
YouвЂ™ve probably heard of cryptocurrency (or crypto, in short form), and are interested in learning how to make money with cryptocurrency. Crypto is one of the hottest investing topics right now and there are news articles all over talking about how people are becoming millionaires by investing in altcoins.
Table of Contents
You might have done some research but thought it looked too technical or complicated. WeвЂ™re here to tell you that itвЂ™s not! Anyone can learn how to earn money with cryptocurrencyВ and by the end of this article, youвЂ™ll be able to start yourself. WeвЂ™ll also help you by categorizing the methods based on:
Read on as we walk you through it and cover several great ways of earning an income with cryptocurrency.
– 1 –В
Buy and hold
Buying and holding is the method youвЂ™re probably most familiar with when it comes to investing and making money with cryptocurrency: You purchase some sort of asset (like stocks), you let interest build up, and then you eventually cash out.
ItвЂ™s the same idea in buying and holding with crypto, except you are waiting for the price of your chosen currency to go up so you can sell at a rate higher than when you bought.
This is one of the best and easiest ways to focus on how to make money in cryptocurrency.
For example Bitcoin was worth around $13 in 2020, and at the most peak price weвЂ™ve seen so far was nearly $20,000 in 2020. That means if you had just purchased $200 of Bitcoin in 2020, it would have been worth over $300,000 if you sold at the peak price! ThatвЂ™s a 1500x return on your money, nearly unheard of in such short of a time in the stock market. It really shows the power of making an income with cryptocurrency.
If youвЂ™d like to know how to make money with cryptocurrency by using buying and holding, we have some articles ready for you so you can get your coins and get started!
How to buy bitcoin
How to buy litecoin
How to buy ethereum
How to buy ripple
While there are MANY different coins out there, we recommend you stick to the 4 mentioned above. These are the safest and have been around for a while. If you invest in a new coin it might be cheap to buy lots of them, but thereвЂ™s a very high chance the coin could just disappear. Coins that have been around a while donвЂ™t have that same risk.
If youвЂ™re ready to buy, we recommend that you visit Coinbase, which has been ranked as the most вЂњbeginner friendlyвЂќ exchange.В ClickВ hereВ to visit Coinbase and when you sign up, you will receive $10 in FREE Bitcoin on your first $100 order!
– 2 –В
Buy and hold for dividends
The strategy and currencies above will pay you when you eventually sell at a higher price than when you bought. However, some currencies will actually pay you just for holding them, which makes this a very lucrative method of making money You donвЂ™t actually purchase or own the cryptocurrency…you simply hold it and keep it in circulation. Some examples of these coins are:
– 3 –
This strategy combines the first two we mentioned: you buy a currency, hold it, plan to sell it for a profit at a later time, AND you also receive dividends from just holding it. This is a great secret in making money with cryptocurrency.
Some examples of these cryptocurrencies are:
В – 4 –В
When considering how to make money with cryptocurrency, mining is one of the methods that always comes up. Mining cryptocurrency is one of the best ways to make money with altcoins as itвЂ™s extremely passive: just invest in the equipment, set it up, and let it run.
But thereвЂ™s the only possible issueвЂ¦investing in the equipment. While you can mine cryptocurrency without extremely high end hardware, the better the hardware, the faster it can create more coins for you and the better your chance of actually making money. Mining works by having computers solve complex mathematical problems, and when they solve them, you are rewarded with cryptocurrency.
The thing is that as more cryptocurrency is created, the problems get harder and harder, and so if you donвЂ™t have a high end system, it can take a LONG time to solve things. You might also need cooling units, extra electricity upgrades, and more to support all this.
Also MANY different people are trying to solve the same problem at the same time. If your computer is too slow and someone else solves the problems first, you get nothing, so investing in a high end system is almost always needed.
How Does Cryptocurrency Work? (for Beginners)
Cryptocurrency (Like Bitcoin) Explained Simply
We explain “how cryptocurrency works.” The goal of this guide is to teach beginners about blockchain and digital currencies (like Bitcoin).
Below we simplify things to make a somewhat complex system easier to understand. Do a site search, Google search, or see the links below to learn more about specific concepts.
What a new user needs to know: Cryptocurrency is roughly the equivalent of using PayPal or a Debit Card, except the numbers on the screen represent cryptocurrency instead of fiat currency like a dollar. All a new user needs to do is set up a Coinbase account. With Coinbase users can buy, sell, send, receive, and store Bitcoin, Bitcoin Cash, Ether, and Litecoin (Coinbase provides an all-in-one wallet, broker, and exchange service making them a one-stop-shop for new users).
The basic concepts are: To use cryptocurrency, you don’t need to understand it (any more than you need to understand the monetary system to use a debit card). However, if you want to understand cryptocurrency you need to understand the concept of digital currency, the concept of blockchain (both as a public ledger of transactions and a technology), and the concept of cryptography. After-all, cryptocurrency is a digital currency, where transactions are recorded on a public digital ledger called a blockchain, and every process along the way is secured by cryptography. The goal of this page will be to help you understand these things and how they connect.
Cryptocurrency works a lot like bank credit on a debit card. In both cases, a complex system that issues currency and records transactions and balances works behind the scenes to allow people to send and receive currency electronically. Likewise, just like with banking, online platforms can be used to manage accounts and move balances. The main difference between cryptocurrency and bank credit is that instead of banks and governments issuing the currency and keeping ledgers, an algorithm does.
What is cryptocurrency? Cryptocurrency is best thought of as digital currency (it only exists on computers). It is transferred between peers (there is no middleman like a bank). Transactions are recorded on a digital public ledger (called a “blockchain”). Transaction data and the ledger are encrypted using cryptography (which is why it is called “crypto” “currency”). It is decentralized, meaning it is controlled by users and computer algorithms and not a central government. It is distributed, meaning the blockchain is hosted on many computers across the globe. Meanwhile, cryptocurrencies are traded on online cryptocurrency exchanges, like stock exchanges. Bitcoin (commonly traded under the symbol BTC) is one of many cryptocurrencies; other cryptocurrencies have names like “Ether (ETH),” “Ripple (XRP),” and “Litecoin (LTC).” Alternatives to Bitcoin are called “altcoins.”
How does cryptocurrency work? Transactions are sent between peers using software called “cryptocurrency wallets.” The person creating the transaction uses the wallet software to transfer balances from one account (AKA a public address) to another. To transfer funds, knowledge of a password (AKA a private key) associated with the account is needed. Transactions made between peers are encrypted and then broadcast to the cryptocurrency’s network and queued up to be added to the public ledger. Transactions are then recorded on the public ledger via a process called “mining” (explained below). All users of a given cryptocurrency have access to the ledger if they choose to access it, for example by downloading and running a copy of the software called a “full node” wallet (as opposed to holding their coins in a third party wallet like Coinbase). The transaction amounts are public, but who sent the transaction is encrypted (transactions are pseudo-anonymous). Each transaction leads back to a unique set of keys. Whoever owns a set of keys, owns the amount of cryptocurrency associated with those keys (just like whoever owns a bank account owns the money in it). Many transactions are added to a ledger at once. These “blocks” of transactions are added sequentially by miners. That is why the ledger and the technology behind it are called “block” “chain.” It is a “chain” of “blocks” of transactions. TIP: I’ve just described how Bitcion works and how many other coins work too. However, some altcoins use unique mechanics. For example some coins offer fully private transactions and some don’t use blockchain at all.
How does blockchain work? The blockchain is like a decentralized bank ledger, in both cases the ledger is a record of transactions and balances. When a cryptocurrency transaction is made, that transaction is sent out to all users hosting a copy of the blockchain. Specific types of users called miners then try to solve a cryptographic puzzle (using software) which lets them add a “block” of transactions to the ledger. Whoever solves the puzzle first gets a few “newly mined” coins as a reward (they also get transaction fees paid by those who created the transactions). Sometimes miners pool computing power and share the new coins. The algorithm relies on consensus. If the majority of users trying to solve the puzzle all submit the same transaction data, then it confirms that the transactions are correct. Further, the security of the blockchain relies cryptography. Each block is connected to the data in the last block via one-way cryptographic codes called hashes which are designed to make tampering with the blockchain very difficult. Offering new coins as rewards, the difficulty of cracking the cryptographic puzzles, and the amount of effort it would take to add incorrect data to the blockchain by faking consensus or tampering with the blockchain, helps to ensure against bad actors.
What is cryptocurrency mining? People who are running software and hardware aimed at confirming transactions to the digital ledger are cryptocurrency miners. Solving cryptographic puzzles (via software) to add transactions to the ledger (the blockchain) in the hope of getting coins as a reward is cryptocurrency mining.
How does cryptography work with cryptocurrency? The keys that move balances around the blockchain utilize a type of one-way cryptography called public-key cryptography. The “hashes” (the one-way cryptographic codes that tie together blocks on the blockchain) use a similar type of cryptography. Meanwhile, transaction data sent and stored on the blockchain is tokenized (tokenization is a type of one-way cryptography that points to data but doesn’t contain all the original data). The key to understanding these layers of encryption which ensure a system like Bitcoin’s (some coins work a little differently) is found in one-way cryptographic functions (cryptographic hash functions, cryptographic tokens, and public-key cryptography are all names for specific, but related, types of one-way cryptographic functions). The main idea is that cryptocurrency uses a type of cryptography that is easy to compute one way, but hard to compute the other way without a “key.” Very loosely you can think of it like this, it is easy to create a strong password if you are in your online bank account, but very hard for others to guess a strong password after it has been created.
How does one obtain or trade cryptocurrency? Cryptocurrency can be obtained most of the same ways other types of currencies can. You can exchanges goods and services for cryptocurrency, you can trade dollars for cryptocurrencies, or you can trade cryptocurrencies for other cryptocurrencies. Trading is generally done via brokers and exchanges. Brokers are third parties that buy/sell cryptocurrency, exchanges are like online stock exchanges for cryptocurrency. One can also trade cryptocurrencies directly between peers. Peer-to-peer exchanges can be mediated by a third party, or not. Please be aware that cryptocurrency prices tend to be volatile. One should ease into cryptocurrency investing and trading and be ready to lose everything they put in (especially if they invest in or trade alternative coins with lower market caps). See cryptocurrency investing tips.
TIP: Like anything else in life, there are tax implications to trading or using cryptocurrency. Make sure you understand the tax implications. In short, you’ll owe money on profits (capital gains) and may owe sales tax or other taxes when applicable. Learn more about cryptocurrency and taxes.
To summarize the above:
- Cryptocurrency can be thought of as a digital currency like PayPal or bank credit (what you use with your credit or debit card).
- Cryptocurrency transactions and balances are recorded on a public digital ledger called a blockchain.
- Cryptocurrencies can be accessed through software called wallets (transactions are broadcast to the network to be added to the blockchain via transactions created in wallets). This can be equated to online banking (where you have account numbers and passwords and move funds between accounts).
- Cryptocurrencies can be bought through a broker or traded on online cryptocurrency exchanges (like a stock exchange).
- There are many other cryptocurrencies beyond Bitcoin (some of which are better defined as digital assets).
- Unlike bank credit, which represents a centrally controlled and issued fiat currency (like the US dollar), cryptocurrency is decentralized and thus not centrally controlled.
- Instead of a central powering controlling cryptocurrency, an algorithm and users themselves control cryptocurrency. The algorithm dictates how transactions work and how new coins are created, users create peer-to-peer transactions using software called wallets. Transactions are recorded on a public digital ledger.
- Those who confirm transactions by breaking cryptographic codes are called miners. Mining is a process that creates new coins.
- Of course, you don’t need to know any of that. All you need to do is set up a Coinbase account and use that to buy and sell Bitcoin, Bitcoin Cash, Ether, or Litecoin and to send and receive cryptocurrency. Just remember to pay your taxes.
TIP: If you find yourself interested in cryptocurrency, check out an exchange like Coinbase Pro and learn how to trade one cryptocurrency for another. Coinbase Pro is a Coinbase product.
Compare bitcoin loans and lending services
How to earn money by lending cryptocurrency to borrowers, or using your cryptocurrency as collateral for a loan.
Last updated: 19 December 2020
- Independent Reserve
- Digital Surge
- A-Z list of exchanges
- Bitcoin (BTC)
- Ethereum (ETH)
- Ripple (XRP)
- Bitcoin Cash (BCH)
- EOS (EOS)
- Litecoin (LTC)
- Cardano (ADA)
- IOTA (MIOTA)
- Stellar (XLM)
- TRON (TRX)
- A-Z list of coins
- Ledger Nano X
- A-Z list of wallets
Get exclusive money‑saving offers and guides
Straight to your inbox
Many cryptocurrency loans work as a form of peer-to-peer lending. The borrower uses their cryptocurrency as collateral to take out a loan, while the lender puts up their own cryptocurrency to serve as a loan and earns some of the interest that the borrower pays.
In this way, cryptocurrency users can be both borrowers and lenders, and either get a loan or earn interest on their cryptocurrency as desired.
While the basic principles remain the same, different platforms work in different ways.
What’s in this guide?
Compare cryptocurrency loans
All fees, rates and platform information is current as of 9 December 2020.
|Platform||For borrowers||For lenders|
How does cryptocurrency lending work?
Different platforms work in different ways, but the general principle is that of peer-to-peer lending. Borrowers use their cryptocurrency as collateral to get loans, while lenders deposit cryptocurrency, which is used to fund the loans.
Most platforms screen borrowers and issue the loans themselves, then simply share the profits with the lenders. This creates an experience similar to the way banks offer loans and pay interest to savings account holders.
Others, most notably Ethlend, act as marketplaces where borrowers and lenders can come together and browse each other’s offers.
In many cases, a platform will have its own native token, which can be optionally used to get preferable rates, discounts or other bonuses.
One of the most important features of these platforms, and one of the reasons they can offer relatively high earnings for lenders, is the fact that they use cryptocurrency as collateral with a typical LTV ratio of around 50%.
This means that there’s plenty of collateral to go around, even in the event of a crypto market drop. If a borrower drops below their agreed LTV ratio, their collateral can be quickly and easily liquidated. As an added bonus, it can almost always be sold incrementally as needed, at fair market rates, without any kind of depreciation beyond the price change.
This helps reduce, and theoretically completely eliminate, the risk of default from borrowers. It’s essentially just using one type of money as collateral for a loan of a smaller amount of another type of money. This safety means that these types of platforms don’t necessarily have to spend as much time and money conducting credit checks, screening borrowers, hiring debt collectors, chasing defaulted loans, setting up payment plans and doing all the other things lenders have to do.
In fact, it can even be used as a framework for completely automating the entire lending process, which some platforms are doing, to reduce costs even further.
What happens to a borrower’s collateral when cryptocurrency prices drop?
The loan to value (LTV) ratio is how much money someone can borrow with their collateral.
For example, with a 50% LTV, someone with $10,000 of Bitcoin could use it as collateral to borrow $5,000.
They are obligated to meet the minimum LTV standards, and lending platforms will typically reserve the right to liquidate portions of the collateral to maintain the agreed LTV ratio if they don’t.
For example, if someone uses $10,000 of Bitcoin to borrow $7,000 – the maximum amount possible with a 70% LTV ratio – and then Bitcoin prices fall by 40% so that they only had $6,000 of collateral, the borrower would need to top up with another $4,000 worth of cryptocurrency to get back to $10,000 and maintain the agreed LTV ratio.
If they don’t, the lending platform may be able to sell enough of the borrower’s collateral to bring the loan back to the agreed 70% LTV ratio.
In this way, higher LTVs are riskier but let borrowers access more money, while lower LTVs are safer but don’t let borrowers access as much money. Similarly, it can be safer for borrowers not to borrow the maximum amount their collateral allows, to avoid needing to top-up or risk having their cryptocurrency sold after a price drop.
Conversely, if cryptocurrency prices rise this allows borrowers to take out more money, within the limits allowed by their collateral.
To avoid market volatility it’s possible to use stablecoins, which remain pegged to fiat currencies, as collateral for a loan. It typically won’t make any sense to do this though, because you might as well just sell the cryptocurrency and spend your money, instead of paying to service a loan.
However, some platforms will let borrowers use a basket of different cryptocurrencies as collateral, and adjust the basket’s balance as needed to minimise their risk.
How to get started
Step 1. Compare crypto lending platforms
In addition to rates, you’ll want to look for a platform that supports your desired (crypto)currencies, and has minimum deposit amounts that suit your needs.
If you only want a small loan, for example, not all platforms will be equally useful. Similarly, if you as a borrower want to better secure the value of your holdings against market forces, you may want to look for a platform that supports stablecoin deposits. If you’re a borrower, you should make sure you know what will happen in the event of major price swings, and whether you can keep your collateral funded.
You should also compare platforms on reputation, security and overall trustworthiness by looking at user reviews, terms and conditions, whether they meet any licensing or compliance obligations, how they secure funds and other factors.
Step 2. Sign up for an account
You will typically need to register for an account on these platforms before you can lend or borrow.
This may involve providing personal details and verifying your identity.
Some platforms may also require trust scores or credit scores as a way of evaluating your creditworthiness. This, and your borrowing history on the platform itself, may affect the loan terms and conditions you can access.
Step 3. Start lending or borrowing
Once you’ve found a suitable platform, signed up and gotten verified, you can start using its services.
In some cases, this may simply be making a deposit and earning some passive income from your new “cryptocurrency savings account”.
In other cases it may be taking out a fiat currency loan with Bitcoin as collateral, or trading.
Different platforms have different features, so it can be worth exploring.
One of the best ways to spot a cryptocurrency scam is to be wary of any offer that seems too good to be true.
But do any of the offers on this page qualify? To stay safe and avoid scams, it’s important to consider what “too good to be true” looks like in this context.
As previously mentioned, cryptocurrency is an extremely effective type of collateral for loans because it’s essentially a type of money in its own right, and these platforms will typically offer LTV ratios of only 30% to 70%.
This means that, when a system is properly set up and managed, there’s practically zero risk for lenders.
This lack of risk would typically translate into extremely good rates for borrowers, but as you can see, that hasn’t happened here. Instead, it’s turning into higher returns for lenders.
When considering this, it’s reasonable to relax one’s assumptions of what a good rate looks like.
Another reason these rates may seem too good to be true is because we’re comparing them to typical savings account rates of today, which have dropped sharply in recent years. But in the 80s and 90s, it was normal for bank customers to earn interest in the double digits from fixed term deposits.
To an extent, these interest earnings aren’t especially high. It’s just that the typical rates of today are so low.
A promise to double your money every year is too good to be true, but there’s nothing inherently unrealistic about 10% per annum in simple interest.
Are these offers as good as they seem? In many cases, the rates for lenders that are shown on this page are only the maximum possible rates, and getting them may require using platform tokens, or meeting certain thresholds.
If you look at the fine print, you may realise that many of these platforms aren’t as good as they first appear. For example, the Crypto.com offer of up to 18% per year is paid as simple, not compound, interest and requires users to stake a certain amount of the native platform token.
Pros and cons of cryptocurrency lending
Both borrowers and lenders have different pros and cons to watch out for when using these platforms.
- Use cryptocurrency as collateral. Most banks and lenders don’t let you use cryptocurrency as collateral, but these platforms do.
- Few strings attached. Loans are typically “no questions asked”. You don’t need to explain why you need the money, and there are typically no conditions on what you can use it for.
- No credit checks. Many of these platforms look at your collateral as evidence of your creditworthiness, rather than checking through more traditional avenues.
- Fast access to funds. While approval times vary between platforms, the lack of red tape means it can be quicker to access loans through these platforms than traditional avenues.
- Requires cryptocurrency as collateral. You typically need to have cryptocurrency to use as collateral when borrowing from these platforms.
- Volatility risk. Market volatility could lead borrowers to unexpectedly need to top up their collateral, or face partial liquidation.
- Poor rates. Cryptocurrency loans tend to have very poor rates considering how little risk there is for lenders.
- Custody and scam risk. You typically have to entrust funds to a platform. If you don’t feel comfortable with this, you may be able to find some which operate as a trustless smart contract instead.
- Earn cryptocurrency. These platforms offer a way of earning interest on cryptocurrency (or fiat currency, or stablecoin) holdings.
- High earnings. The poor rates for borrowers translates into high earnings for lenders.
- Minimal counterparty risk. Cryptocurrency’s unique features allow for loans with minimal counterparty risk.
- Lack of regulation. Cryptocurrency regulation is still in its infancy, and many of these platforms are beyond the scope of current regulation. If something goes wrong, you may be left with no recourse.
- Custodial platforms. While there are platforms that let users retain control of their private keys while earning interest, similar to staking cryptocurrency, many will require users to make deposits and entrust funds to the platform. If something goes wrong, you may not be able to recover your funds.
- Scam risk. Not all purported cryptocurrency lending platforms are legitimate. Some are scams, and if you accidentally send money to one, you may lose your funds.
Frequently asked questions
Can I borrow money to buy more cryptocurrency?
Even if you use cryptocurrency as collateral to get a loan to buy more cryptocurrency, then use that as collateral for another loan to buy more cryptocurrency and keep doing that as far as you can, it is mathematically impossible to get more money than you have collateral as long as a platform’s LTV ratio is less than 50%.
If you do it anyway, then if the price of the backing cryptocurrency goes up you make more money than you would have otherwise. And if the price goes down, you may experience a chain reaction of collateral being liquidated.
The end result is almost identical to an extremely inefficient, expensive and convoluted form of margin trading with less than 2x leverage.
What’s the best cryptocurrency lending platform?
However, some platforms are characterised by high minimums for borrowers, so if you’re looking to borrow, looking at the minimums may be a good way of ruling out unsuitable platforms.
If you’re looking to earn money from your holdings, a good starting point may be to look at supported cryptocurrencies.
Which cryptocurrency lending platform pays the most?
To find the highest payouts, remember to look at whether there are any conditions attached to higher earnings, whether it’s simple or compound interest and how frequently it’s paid out.
The Best Binary Options Broker 2020!
Perfect For Beginners!
Free Demo Account!
Free Trading Education!